Employee Classification:
Exempt vs. Non-Exempt
This Law Review was written by
Timothy A. French and edited by
Jed Mandel, both of whom are
founding members of Chicago
Law Partners, LLC. CLP serves
as the Association Forum’s general counsel.
Q: I am in the process of reviewing our
job classifications. Can you help me
determine how to classify my employees
as exempt or non-exempt?
exemptions provided under the salary
basis and duties tests are limited, and
the burden is on the employer to prove
that a given employee is exempt (and
therefore not entitled to receive overtime
pay). The following criteria must be met
for an employee to be exempt from the
FLSA’s overtime and minimum wage
requirements:
1. The employee must be paid on a salary, not hourly, basis;
The employee must be paid at
least $455 per week ($23,660 per
year), regardless of the percent time
worked (note that criteria 1 and 2
make up the “salary basis” test); and
“duties” test) must fall within one of
six specific categories.
The six categories of exempt job duties
for FLSA purposes include:
Executive Exemption. The employee’s
primary duties must involve managing
an enterprise or a recognized department or subdivision of an enterprise, and
must involve directing the work (with the
authority to make hiring and firing decisions or recommendations) of two or
more employees.
Administrative Exemption. The
employee’s primary duties must involve
office work — performed with an appreciable amount of discretion and independent judgment — that is directly related
to the management or general business
operations of the enterprise.
Learned or Creative Professional
Exemption. The employee’s primary
duties must involve intellectual work
requiring advanced knowledge in a
field of science or professional learning
(e.g., law, medicine, nursing, pharmacy,
accounting, actuarial services, engineering, education and various natural sciences), or must involve work requiring
invention, imagination, originality or
talent in a recognized field of artistic or
creative endeavor (e.g., music, art, writing
and acting).
A: First, it is important to understand
from where the terms “exempt” and “
non-exempt” derive. The Fair Labor Standards
Act ( 29 U.S.C. §§ 201, et seq.) requires
that most employees receive overtime
pay at 1. 5 times the employee’s regular
pay rate for time worked in excess of 40
hours in a seven-day workweek and that
employees be paid at least the federal
minimum wage, which currently is $7.25
per hour ($8.25 per hour under Illinois’
minimum wage law). There are, however,
certain employees/jobs that are exempt
from the FLSA’s overtime requirements.
Whether an employee is “exempt” or
“non-exempt” is a very important question that must be carefully considered.
Certain categories of workers are
beyond the FLSA’s scope. Those non-covered workers include volunteers, certain
trainees and interns, various agricultural
workers and independent contractors. In
that regard, the general rule is that an
individual will be deemed an independent contractor if the person for whom
the individual performs work has the
right to control or direct the result of the
work, but not the means and methods of
achieving the result. This is significant,
as an employer is not obligated to withhold and pay income, Social Security,
Medicare and unemployment taxes on
wages paid to an independent contractor. Please note: The Department of
Labor, the IRS and their state equivalents
have been very focused on examining an
employer’s categorization of workers as
independent contractors — an area in
which they feel there have been abuses.
In addition to the non-covered workers,
several exemptions to the FLSA are provided for employees who meet specified
requirements. Those requirements generally are referred to as the “salary basis”
test and the “duties” test. The FLSA
2.
Computer Professional Exemption.
The employee’s primary duties must
involve work as a computer systems
analyst, computer programmer, software
engineer or other similarly skilled worker
in the computer field.
Outside Sales Exemption. The
employee’s primary duties must involve
making sales or obtaining orders or contracts for services or for the use of facilities, and the employee must be regularly
engaged away from the employer’s place
of business.
Highly Compensated Employees.
Employees performing office (
non-man-ual) work and who are paid total annual
compensation of $100,000 or more are
exempt if they regularly perform at least
one of the duties of an exempt executive,
administrative, or learned or creative professional.
Another important caveat is that the
foregoing categories of FLSA-exempt
jobs apply only to “white-collar” workers
who also meet the “salary basis” test.
The exemptions do not apply to manual
laborers or other “blue-collar” workers
whose work involves repetitive operations
performed with their hands that requires
physical skill and energy. Thus, nonmanagement employees in maintenance,
production, construction and similar
occupations (e.g., carpenters, electricians,
plumbers and laborers) are non-exempt
and are entitled to the FLSA’s overtime
and minimum wage requirements regardless of their compensation level.
The categories in which employees fall
have significant implications under the
FLSA. Knowing the answer to whether an
employee is exempt or non-exempt is
important to the management of any
enterprise, whether it’s for-profit or not.
The answers provided here should not be con-strued as legal advice or a legal opinion. Consult a
lawyer concerning your specific situation or legal
questions.
